Oil price forecasts cut as market slumps

OPEC output rises from lowest in over a year
OPEC crude oil output has rebounded in April from its lowest monthly level in more than a year due to the resolution of export disruptions in Iraq and Libya and a rise in Iranian sales, a Reuters survey found.

Supply from the Organization of the Petroleum Exporting Countries is set to average 30.46 million barrels per day (bpd), up from 30.18 million bpd in March, the survey of shipping data and sources at oil firms, OPEC and consultants found.

The survey indicates supply has risen due to fewer output disruptions rather than any strategy to pump more oil. Top OPEC exporter Saudi Arabia, which cut supply at the end of 2012, is keeping a lid on output, as are its Gulf Arab OPEC allies.

“It’s to be expected,” Paul Tossetti, senior energy adviser at PFC Energy, said of April’s supply increase. “The Saudis cut production and were supported by others, but it was all involuntary.”

OPEC’s March output was the lowest since October 2011, when the group produced 29.81 million bpd, according to Reuters surveys. This month, OPEC is pumping 460,000 bpd more than its supply target of 30 million bpd, in place since January 2012.

According to the survey, Saudi Arabia has kept output steady at 9.25 million bpd this month. Domestic demand tends to rise in April due to a seasonally higher need for crude to fuel power plants, although industry sources say exports have been flat.

OPEC is scheduled to meet on May 31 in Vienna to review output policy for the second half of the year. At present, OPEC is expected to keep the target unchanged, leaving the door open for Saudi Arabia to tweak supply depending on demand.

Saudi Oil Minister Ali al-Naimi may give details on Saudi production and hints about output policy later on Tuesday, when he is due to give a speech in Washington.

Brent crude will hover around US$100 a barrel for the next two years, a Reuters poll showed after analysts slashed their forecasts for the oil price to reflect ample supply and sluggish economic growth.

Brent crude oil will average US$107.60 per barrel this year, Reuters monthly oil price survey for April predicted on Tuesday, down from US$110.80 in last month’s poll and below last year’s average price of US$111.70.

Slower-than-expected growth data from the United States and China, the world’s biggest oil consumers, in the past month has tempered the outlook for oil demand while global output has kept rising, especially from U.S. shale oil projects.

Brent has lost more than 6% since the start of April and has averaged close to US$110.40 so far in 2013.

The poll forecasts the downtrend in prices will continue next year, with Brent averaging $106.60 in 2014 before recovering only very slightly to $106.70 in 2015.

Reuters surveyed 27 oil analysts at banks, brokerages and consultancies. Of the 25 analysts polled in both March and April, 17 reduced their forecasts.

“Overall, I think weak demand and ample supply will, in the end, result in lower average oil prices in 2013 (compared to 2012) and this trend will continue in 2014 and 2015,” he said.

U.S. light crude oil, also known as West Texas Intermediate or WTI, should outperform European benchmark Brent after having underperformed it in the past years.

The poll forecast WTI would average $94.60 a barrel in 2013, down from $95.70 in last month’s poll but slightly above the 2012 average of $94.15.

That will help narrow the gap between WTI and Brent on the back of rising U.S. demand and improving U.S. pipeline infrastructure, which will help deliver oil to refining hubs more quickly.

Weak economic activity would weigh on demand in Europe. In the United States, economic growth should be faster than in Europe although first-quarter economic growth was not as strong as expected, Chris Tevere, analyst at GAIN Capital, said.

He expects U.S. crude oil futures to average $92 a barrel in 2013 and $96 in 2014.

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Brent touched a 2013 low of $96.75 on April 18 but analysts said it should recover back above $100 a barrel by the third quarter.

“While we do not rule out further weakness in the near term, we do not see prices acclimatising below the $100 per barrel mark past Q2,” Barclays analyst Miswin Mahesh said.

“Progressing through the tail end of Q2 and into the second half of 2013, we see strong indications for demand growth developing which will keep the call on crude elevated.”

Two analysts forecast Brent prices would average below $100 in 2013 compared with one in the previous month’s poll.

“The recent weakness supports our view that oil prices have been unsustainably high, given the fragility of the global economic recovery,” said Julian Jessop, analyst at Capital Economics.

“Over the next few years we continue to expect $100 to become a ceiling for Brent, rather than the floor that many others assume,” said Jessop, who forecast Brent at $98 a barrel for 2013 and $90 in 2014.

Thirteen analysts forecast Brent would average more than $108.40 in 2013, the median of the forecasts, compared with 19 in last month’s poll.

Raiffeisen Bank International had the highest forecast for Brent in the poll at $114.30 for 2013, while Citigroup had the lowest at $90 a barrel.